(8th edition) (the pearson series in economics) robert pindyck, daniel rubinfeld microecon 505
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480 PART 3 • Market Structure and Competitive Strategy
Price
TD
F IGURE 12.11
THE CIPEC COPPER CARTEL
Sc
TD is the total demand for copper and Sc is the
competitive (non-CIPEC) supply. CIPEC’s demand DCIPEC is the difference between the two.
Both total demand and competitive supply are
relatively elastic, so CIPEC’s demand curve is
elastic, and CIPEC has very little monopoly
power. Note that CIPEC’s optimal price P* is
close to the competitive price Pc.
MCCIPEC
P*
Pc
DCIPEC
MR CIPEC
Q CIPEC Qc
QT
Quantity
as aluminum, can easily be substituted for copper.) Also, competitive supply is
much more elastic. Even in the short run, non-CIPEC producers can easily
expand supply if prices should rise (in part because of the availability of supply
from scrap metal). Thus CIPEC’s potential monopoly power is small.
As the examples of OPEC and CIPEC illustrate, successful cartelization requires
two things. First, the total demand for the good must not be very price elastic.
Second, either the cartel must control nearly all the world’s supply or, if it does
not, the supply of noncartel producers must not be price elastic. Most international
commodity cartels have failed because few world markets meet both conditions.
E XA MPLE 12.6 THE CARTELIZATION OF INTERCOLLEGIATE ATHLETICS
Many people think of intercollegiate athletics as an extracurricular
activity for college students and a
diversion for fans. They assume
that universities support athletics
because it not only gives amateur
athletes a chance to develop their
skills and play football or basketball before large audiences but
also provides entertainment and promotes school
spirit and alumni support. Although it does these
things, intercollegiate athletics is also a big—and an
extremely profitable—industry.
Like any industry, intercollegiate athletics has
firms and consumers. The “firms” are the universities
that support and finance teams.
The inputs to production are the
coaches, student athletes, and
capital in the form of stadiums
and playing fields. The consumers,
many of whom are current or
former college students, are the
fans who buy tickets to games
and the TV and radio networks
that pay to broadcast them. There are many firms
and consumers, which suggests that the industry is
competitive. But the persistently high level of profits
in this industry is inconsistent with competition—a
large state university can regularly earn more than
$6 million a year in profits from football games
